World financial crisis

Europe reforms finance as Asian banks cut interest rates

Article published on the 2008-11-07 Latest update 2008-11-07 13:38 TU

(Photo: Reuters)

European finance ministers meet Friday to tackle the effects of the world financial crisis. EU Economic Affairs Commissioner Joaquin Almunia says that they have reached a "very high consensus" on plans to reform the global finance crisis but differences between France and Germany have surfaced.

French President Nicolas Sarkozy said that the meeting will address the need "to co-ordinate economic policies". This is expected to involve an increased role for the International Monetary Fund (IMF) although some governments are believed to be reticent at the idea of "regulation".

Germany this week distanced itself from a French document that proposed "a co-ordinated response to macro-economic challenges", with French Junior Minister for European Affairs, Jean-Pierre Jouyet, describing Germany's stance as "a mistake".

European agreement is expected to come more easily on the need for tighter regulation of the financial sector. Member countries are expected to be concerned that financial incentives for finance workers have been encouraging excessive risk-taking.

The EU Economic Affairs Commissioner Joaquin Almunia said on Friday that stricter regulations on hedge funds were among the measures that would be adopted "in the short term".

The meeting was preceded by bad news for France as its trade deficit was said to be standing at 6.25 billion euros for the month of September. French Junior Foreign Trade Minister Anne-Marie Idrac acknowledged that the risk of a record trade deficit for 2008 was now "big".

Meanwhile, Germany announced a trade surplus of 15 billion euros for the same month. The Italian press reported on Friday that the government was preparing to spend up to 15 billion euros to support its banks.

South Korea's Central Bank on Friday cut its interest rate on Friday for the third time in a month, lowering it by a quarter of one per cent. This follows the announcement of a stimulus plan on Monday. The currency, the won, has lost a third of its value this year.

The cut in interest rates was mirrored in Hong Kong as five banks announced interest rate cuts. The Philippines' Central Bank said on Friday that it would cut reserve requirments by two per cent for the country's banks. This, it said, should allow banks to lend to each other at lower rates and should prevent "liquidity or credit tightness".